Emergency Fund Amount

[corn18]

I have taken a different approach to an EF and wanted your thoughts. I have an EF set up now for unexpected expenses. I consider this a car breaks down, water heater explodes, emergency plane ticket home because dad has cancer, that sort of thing. I keep $5k in there for that. Funds will come out as required then get replaced.

Then I plan to have a "lose my income fund". This just sits there and does nothing and hopefully never gets used at all. No withdrawal unless I am unemployed. I plan to put 8 mo expenses in there. But the expenses are not at the level they are now. I cut some stuff out (kids allowance, dining, gifts, entertainment) and reduced some others (clothes, house, health/beauty, misc). So it's more of an emergency budget. Housing, health insurance, utilities, life insurance stay the same. So it's a lot less than my normal monthly budget. I can make my "lose my income fund" last a lot longer.

But here's the cool thing that happened as I was doing my what if scenarios. Once I get the cars paid off, if I decide to pay off the house, too, I don't need a "lose my income fund" anymore because my military pension more than covers the amount I need if I don't have a mortgage. I could actually live off my pension indefinitely with money to spare. Would be very frugal, but it would work. That is very comforting and got me thinking about tackling the mortgage.

Tom

[kork13]

That's an excellent plan, and actually nearly identical to what I do (and many others as well). I keep about $5k in savings/checking accounts, and $20k (5 months' expenses) in I-Bonds. What I really like about a tiered EF like that is the safety & flexibility it gives you while still preserving some ability to keep up with inflation & such. Especially because you have the military pension to cover you in the event of something unexpected, I think it's a great plan for you.

[feh]

Sounds like a fine plan to me. We don't personally separate "I lost my job" and "large expenses" funds, but I think it's perfectly acceptable to look at things that way.

[JoeP]

Yep, whatever works! We keep our EF (a dumb savings account) for dual purposes: actual emergencies, and un-budgeted expenses such as certain car maintenance over $100.

Tacking the mortgage was on our list about 12 years ago, and we're almost out of it now since refinancing to a fixed 15 year at 3.4%. Knowing we won't lose our house for non-payment will be reassuring (although we'll still be on the hook for ins and taxes). Really looking forward to the payoff party!

[figuringmoneyout]

Sounds good! It's almost like you are double covered for emergencies which is better than a lot of people. Good job with saving and planning well!